Ex-Goldman Saleswomn Called to Bury Tourre With Praise

Fabrice Tourre, a former vice president at Goldman Sachs Group Inc., center, walks to federal court before the second day of trial proceedings in New York, on July 16, 2013. Photographer: Peter Foley/Bloomberg

July 23 (Bloomberg) -- An ex-colleague of Fabrice Tourre
heaped praise on the former Goldman Sachs Group Inc. vice
president, saying she was “very impressed” with his detailed
knowledge of the complicated mortgage-backed investments he
created and sold.

“He was a trusted member of my team that I respected,”
said Gail Kreitman, a former saleswoman at the bank, in
testimony yesterday in Manhattan federal court.

The compliments, however, weren’t ones Tourre was fishing
for. The Securities and Exchange Commission, in its fraud suit
against Tourre, alleged he conned ACA Management LLC -- through
Kreitman -- into lending its name to a 2007 transaction at the
center of the case, one that ended up collapsing in a $1 billion
loss for investors when the housing market imploded.

Kreitman, called by the SEC to the witness stand, was a
Goldman Sachs saleswoman on ACA’s account. She testified that,
while frequently depending on Tourre for details of the deal,
she couldn’t remember who gave her a key piece of information
aimed at getting ACA involved. By evoking Tourre’s competent
reputation as part of their examination of Kreitman, SEC lawyers
sought to convince jurors it was he.

Last week, an SEC lawyer played a recorded telephone call
in which Kreitman told a former ACA employee, Lucas Westreich,
that New York-based Goldman Sachs planned to place “a hundred
percent of the equity” in the transaction with the hedge fund
run by billionaire John Paulson.

CDOs

The SEC alleged Paulson’s fund never intended to invest in
the transaction, a synthetic collateralized debt obligation
known as Abacus 2007-AC1. Instead, Paulson selected assets for
the deal and bet they would fail, the regulator claimed.
Investors were flattened when the residential mortgage-backed
securities underlying Abacus dropped in value with the decline
of the housing market.

Tourre, 34, allegedly misstated the role of Paulson & Co.,
the regulator claimed in its lawsuit. Tourre has denied any
wrongdoing.

Kreitman testified she doesn’t remember who told her
Paulson was expected to take the equity stake in Abacus. She
said she mostly dealt with Tourre and David Gerst, another
Goldman Sachs employee, in connection with the deal.

Bridget Fitzpatrick, a lawyer on the SEC’s trial team,
introduced e-mails yesterday in which Kreitman and Tourre
discussed details of Abacus and of the relationship with ACA.

Paulson

The SEC claims Paulson, which in 2006 and 2007 was making
huge bets against the subprime mortgage market, never intended
to invest in Abacus. Tourre let ACA think Paulson was a long
investor so it would serve as the third-party agent to select
the assets backing up the deal, according to the SEC.

The regulator claimed Tourre believed ACA’s presence on
Abacus would lend credibility and attract investors. ACA would
never have agreed to participate if it had known the truth,
according to the SEC.

After Kreitman concluded her testimony, Alan Roseman, the
former president of ACA’s parent holding company, testified
Paulson’s investment in Abacus was “critical” to the firm’s
decision to participate.

Under cross-examination by Sean Coffey, a lawyer for
Tourre, Kreitman expanded her praise of her former colleague.

“I was very impressed with his knowledge,” Kreitman
testified. “I was proud to call him a member of the team. I do
not remember any instance when he was not responsive and
helpful.”

The SEC’s star witness, Laura Schwartz, the senior ACA
executive on the transaction, is scheduled to testify as early
as today. Tourre himself may take the stand later this week.

The case is SEC v. Tourre, 10-cv-03229, U.S. District
Court, Southern District of New York (Manhattan).